Bulls are Back: Fiscal Progress Ignites Broad Rally

After kicking off the week on a bearish note, the bulls made a powerful comeback Thursday as traders cheered signs of progress in U.S. fiscal talks and dovish commentary from Federal Reserve officials.

Today's Markets

The Dow Jones Industrial Average jumped 323 points, or 2.2%, to 15126, the S&P 500 rallied 36.2 points, or 2.2%, to 1693 and the Nasdaq Composite advanced 83 points, or 2.3%, to 3761.

After a day spent focusing on the Federal Reserve, Wall Street is once again pointing the spotlight squarely at Capitol Hill and the White House.

Indeed, Republicans in Congress were planning to propose legislation that would boost the debt limit until November 22, according to FOX Business' Rich Edson. President Barack Obama has signaled he would begrudgingly pass such a measure.

"The debt limit deadline looks increasingly likely to be pushed off with a short-term extension," Goldman Sachs economist Alec Phillips told the investment bank's clients. "It looks less
likely that the partial federal shutdown will be ended with the extension, but this is still unclear."

Still, many traders struck a cautious tone because of the short-term nature of the potential agreement.

"This development is just an initial step to agreeing to agreeing," said Peter Boockvar, chief market strategist at The Lindsey Group. The "only thing that comes of today’s meeting is a four-to-six week delay and says nothing about what happens in the interim."

Dan Greenhaus, chief global strategist at BTIG, shared Boockvar's concerns, saying, there is "not much to get excited about" at this point.

Adding to the bullish sentiment on the day, St. Louis Federal Reserve President James Bullard said the central bank is unlikely to begin tapering its vast asset-buying program at its October meeting, citing concerns about the government shutdown, the debt debate and a lack of economic data, according to a report by Reuters.

In a sign of the breadth of the rally, every major sector was in the green and every Dow component besides was to the upside. It was the best day since January for both the Dow and S&P 500. Meanwhile, the CBOE's VIX, which is seen as Wall Street's fear gauge, plunged 15.9% in the .

Jobless Claims Distorted

On the economic front, the number of Americans filing for first time unemployment benefits rose last week to 374,000, the highest level since March, from 308,000 the week prior. Economists expected claims to rise to 310,000.

The Labor Department said half of the jump was attributed to computer issues in California, and about 15,000 claims came from non-federal workers who were adversely affected by the government shutdown.With essentially all government reported halted for the moment due to the government shutdown, this report has taken on increased significance.

"While the underlying trends of improvement in jobless claims remain in place in our view, the potential for lingering computer issues and the government shutdown complicate the interpretation," Cooper Howes, an economist at Barclays wrote to the investment bank's clients.

"This is particularly inconvenient given the current lack of government data releases and puts even more emphasis on the few other indicators that will continue to be published."

Elsewhere, in commodities, U.S. crude oil prices rose $1.40, or 1.4%, to $103.01 a barrel. Wholesale New York Harbor gasoline advanced 2.9% to $2.698 a gallon. Gold fell $10.30, or 0.79%, to $1,297 a troy ounce.

Foreign Markets

The Euro Stoxx 50 rallied 1.6% to 2952, the English FTSE 100 jumped 1% to 6402 and the German DAX gained 1.4% to 8639.

In Asia, the Japanese Nikkei 225 lurched higher by 1.1% to 14195 and the Chinese Hang Seng dipped 0.36% to 22951.